Question

Give the journal entry for purchase consideration receivable

Answer 1

Accounting standard 14 is not applicable for selling company.
Accounting is done with the objective of closing books of accounts and simultaneous determination of profit or loss on closing books of accounts.
Transfer to realization account
SL.NO PARTICULAR DEBIT CREDIT
1 Transfer all Assets at book value to realization a/c ( except Miscellaneous)
Realisation A/C Dr
To Assets A/c XXX
XXX
2 Transfer all liabilities taken over purchasing company(Except equity, preference and reserves)
Liabilities A/c Dr
To Realisation A/c XXX
XXX
PURCHASE CONSIDERATION
Purchase consideration represents consideration paid in cash, shares, debentures etc.
SL.NO PARTICULAR DEBIT CREDIT
1 Due entry for consideration
Transferee company A/C Dr
To Realisation A/c XXX
XXX
2 Receipt of consideration
Shares/Cash A/c Dr
To Transferee company A/c XXX
XXX
SALE OF ASSETS NOT TAKEN OVER BY PURCHASING COMPANY
SL.NO PARTICULAR DEBIT CREDIT
1 Sale with assuming profit
Bank A/C Dr
To Assets A/C(book value)
To Realisation A/c(Profits) XXX
XXX
XXX
2 Sale with assuming loss
Bank A/c Dr
Realisation A/c(loss) Dr
To Assets A/c(Book Value) XXX
XXX
XXX
SETTLEMENT OF LIABILITIES NOT TAKEN OVER BY PURCHASING COMPANY
SL.NO PARTICULAR DEBIT CREDIT
1 Settlement with assuming at discount)
Liabilities A/C Dr
To Bank A/C(book value)
To Realisation A/c(Profits) XXX
XXX
XXX
2 Settlement with assuming at loss
Liabilities A/c Dr
Realisation A/c(loss) Dr
To Bank A/c(Book Value) XXX
XXX
XXX
Realisation Expense
SL.NO PARTICULAR DEBIT CREDIT
1 Incurred by transferor(Selling Co.) company
Realisation A/c
To Bank A/c XXX
XXX
2 Incurred by transferee(purchasing Co.) company
NO ENRTY NIL NIL
3 Incurred by transferor(Selling Co.) company
Reimbursed by transferee company
Transferee company A/c Dr
To Bank A/c
On Reimbursement
Bank A/c Dr
To Transferee company A/c XXX
XXX XXX
XXX
AMOUNT DUE TO EQUITY SHAREHOLDERS
SL.NO PARTICULAR DEBIT CREDIT
1 Transfer of share capital and reverse to shareholders account
Equity Share capital A/c Dr
Reserves A/c Dr
To Shareholders A/c XXX
XXX
XXX
2 Transfer of balances in realization account
Realisation A/c (Profit) Dr
To shareholders A/c
In Case of loss
Shareholders A/c Dr
To Realisation A/c (Loss) XXX
XXX XXX
XXX
SETTLEMENT TO SHAREHOLDERS BY TRANSFER OF CONSIDERATION RECCEIVED
SL.NO PARTICULAR DEBIT CREDIT
1 Shareholders A/c Dr
To shares of transferee company A/c
To Bank A/c XXX
XXX
XXX

Answer 2

Journal Entry:

Cash A/C     Dr

    To Realization A/C

(Purchase consideration done on cash)

What is a Realization Account and When it is used?

• The sale of an asset and the discharge of a liability is recorded in a nominal account which is called Realization Account.
• A realization account is opened when its assets and liabilities are ascertained to know their profits and losses.
• Transferring the assets except bank and cash are recorded on the debit side and transferring the liabilities except for partners' capital and partners' loans are recorded on the credit side.
• It is open during the disclosure of any partnership firm.